Dendrimers have unique characteristics including monodispersity and modifiable surface functionality, along with highly defined size and structure. This makes these polymers attractive candidates as carriers in drug delivery applications. Drug delivery can be achieved by coupling a drug to polymer through one of two approaches. Hydrophobic drugs can be complexed within the hydrophobic dendrimer interior to make them water-soluble or drugs can be covalently coupled onto the surface of the dendrimer. Using both methods we compared the efficacy of generation 5 PAMAM dendrimers in the targeted drug delivery of methotrexate coupled to the polymer. The amine-terminated dendrimers bind to negatively charged membranes of cells in a non-specific manner and can cause toxicity in vitro and in vivo. To reduce toxicity and to increase aqueous solubility, modifications were made to the surface hydroxyl groups of the dendrimers. For targeted drug delivery, the dendrimer was modified to have a neutral terminal functionality for use with surface-conjugated folic acid as the targeting agent. The complexation of methotrexate within a dendrimer changes the water insoluble drug into a stable and readily water-soluble compound. When this dendrimer complexed drug, however, was placed in a solution of phosphate buffered saline, the methotrexate was immediately released and displayed diffusion characteristics identical to free methotrexate. Covalently coupled methotrexate dendrimer conjugates were stable under identical conditions in water and buffered saline. Cytotoxicity tests showed that methotrexate as the dendrimer inclusion complex had an activity identical to the free drug in vitro. In contrast, folic acid targeted dendrimer with covalently conjugated methotrexate specifically killed receptor-expressing cells by intracellular delivery of the drug through receptor-mediated endocytosis. This study demonstrates that while drug as a dendrimer inclusion complex is readily released and active in vitro, covalently conjugated drug to dendrimer is better suited for specifically targeted drug delivery.